While compliance management is something that all buy-side financial institutions have to keep track for regulatory purposes, many insurers believe that the bank-like capital standards that could be imposed are too onerous. As such, many have asked the government to relent.
When the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed and signed into law in 2010, legislation that dramatically changed the country’s financial and regulatory system, part of the bill required that the Federal Reserve implement capital and leverage standards on insurers. However, due to the nature of these regulations, insurers say that they could jeopardize their business function.
Julie Spiezio, senior vice president of an insurance trade association, told members of the Senate Banking Committee the standards being applied aren’t germane to the industry.
“It’s a difference in the fundamental business model,” said Spiezio. “It’s like trying to put the safety standards of airplanes on cars.”
Maine senator major supporter of refining capital regulations
Many members of the U.S. Senate agree, including Maine Sen. Susan Collins. Testifying in front of the Subcommittee on Financial Institutions and Consumer Protections, she said that lawmakers have rightly increased the amount of regulations financial institutions must abide by, doing so to stave off another financial crisis. But the capital regulations for insurers are unduly rigorous.
“My legislation would add language to … clarify that, in establishing minimum capital requirements for holding companies on a consolidated basis, the Federal Reserve is not required to include insurers so long as the insurers are engaged in activities regulated as insurance at the state level,” said Collins.
She added that her bill – the Collins Capital Standards Amendment – would also include foreign insurance entities that are within a U.S holding company. They would be provided with a mechanism to receive the same treatment from the Federal Reserve that state-level insurers get.
Some insurance trade associations have expressed their support of Collins’ amendment that would better differentiate what standards insurers are held to.
“Forcing bank capital standards onto an insurance company makes no more sense than imposing standards designed for auto insurers onto banks,” said Nat Wienecke, senior vice president of federal government relations at the Property Casualty Insurers Association of America. “They are fundamentally different businesses, with different risks, leveraging and regulatory focus on insurance legal entities versus banking source of strength.”